There's Hope Yet for Iomega

Iomega could make a comeback, thanks to the rapidly growing market for its products.

Cheap home networking equipment isn't just being used in the home. Small and midsize businesses also like the convenience of being able to build simple networks with components from retail computer and office supply stores. And the major IT vendors are clamoring to cater to this market niche.

As is typical, small and midsize businesses are leading the way in the economic recovery, as large corporate IT spending remains sluggish. So hardware manufacturers are turning to the small and midsize businesses to help boost profits. Dell(NASDAQ:DELL) and EMC(NYSE:EMC)recently announced they have partnered to offer a new storage area network (SAN) server with 480 gigabytes to 3 terabytes of space. Sun Microsystems(NASDAQ:SUNW) has partnered with Procom Technology to get into the network-attached storage (NAS) market. And Hewlett-Packard(NYSE:HPQ) followed close behind, announcing it has partnered with Iomega(NYSE:IOM) to offer a similar product. Iomega is also separately offering a lower-end NAS server also targeted at small and midsize businesses.

SAN and NAS are two different ways of storing data. Generally speaking, SAN is used in larger server-driven networks, while NAS is more applicable to simple networks. But the specifics are irrelevant, with the point being that the market for simple networked storage equipment is really starting to open up. According to research firm Gartner, the lower-end NAS market is expected to grow at a compound annual rate of 16.7% through 2007 and reach $3 billion.

The market is already getting crowded with offerings, but I still think this might be the break Iomega has badly needed. It was a Wall Street darling in the mid-1990s, before the Internet companies took off, but hasn't performed well since -- despite numerous product successes and maintaining respect for its brand with retail consumers. And that's why I think it might just finally be able to pull itself up by the bootstraps.

Networking equipment is selling to ever-smaller businesses, and the people buying that equipment tend to have similar yet slightly more advanced needs compared with retail home users. And because Iomega is well-positioned as a leader in storage equipment for this market, the company could now look attractive to a major player wanting to lock in market share.